Real estate is a lucrative investment, thanks to the promising opportunities that have cropped up in many places around the world. Though many real estate investors tend to focus on the growing economies of China, India and Brazil, there are some serious opportunities in developed countries like Canada as well. In fact, the Canadian economy is seeing higher levels of growth because of its oil deposits. Also, its stable infrastructure and strong currency are contributing to its growth.
Despite this booming economy, the big question is whether real estate scores over other forms of investment such as stocks and bonds. To get the answer, you simply have to calculate the Return on Investment (ROI) of real estate and compare it with stocks and bonds. Two types of returns are used to understand the potential of an investment and they are nominal and real returns. The big difference between the two types is inflation. While nominal return does not take into account the inflation that occurs over the period of investment, real returns do.
This difference is huge in financial planning. For example, a nominal rate of 20 percent may sound exciting at the first glimpse. However, if the country’s inflation is 16 percent, then the net ROI is only 4 percent. In such a case, a real rate of 5 percent is a better choice. Understanding this difference is important to recuperate the highest ROI investing in Canadian acreages or any other real estate market. Ideally, the ROI from a real estate investment should cover your monthly expenses. It is a good idea to look for investments that give a ROI of 10 percent or more as this will give you a little additional savings as well. In fact, Warren Buffet recommends a nominal ROI of 15 percent or more that includes inflation and taxes.
Another criterion you should consider is the savings rates of banks. If the ROI is greater than the savings account rate, then you can confidently invest in real estate. Comparing with the ROI of stocks also helps to make the right financial choices. Besides ROI, there are other surrounding factors you should consider too such as tax advantages, leverage, volatility, health of the economy and government regulations. These aspects can impact your property in the long run, so it is important to get a comprehensive view.
The above-mentioned numbers are mere guidelines to help you make the right choices. This is because the purpose of investment varies greatly from individual to individual. The ROI depends to a large extent on the expenses, savings, amount of money available for investment and the location of the real estate property. Based on these factors, you can determine the ROI that would work best for you.
To recuperate the highest ROI investing in Canadian real estate, you should do a lot of research. Identify the locations that are likely to give the highest ROI by understanding the local economy, what drives it and what it is going to look like ten years from now. The emphasis should be more on the future because any real estate investment you make should be long-term. There is currently a lot of debate going on about Canadian real estate. In fact, the Canadian Association of Accredited Mortgage Professionals predicts a 30 percent drop until 2015. But, as an investor, this is your buying opportunity provided you do your homework. You can look for areas that have the highest potential to grow in the future including up-and-coming neighborhoods of major cities such as Toronto and Ottawa. You can also explore many rural areas rich in resources which can bring in huge profits in the future.
In short, when you want to invest in the Canadian real estate market, start with research. Look for potential areas that will fetch you the ROI you want and then make your choice.
This article was written on behalf of Dignam, Canada’s most trusted source for country acreages for sale and vacant land in Ontario and across the country.